NOTE

PARAMOUNT REVISITED: THE RESURGENCEOF VERTICAL INTEGRATION IN THE

MOTION PICTURE INDUSTRY

As in all industries, those few individuals who control the mo-tion picture industry have, from the start, vehemently sought to guar-antee their control and shape growth. With this desire to control co-mes an inevitable conflict with the policies that underlie antitrustregulation. In the motion picture industry, absolute control is derivedfrom the domination of its three divisions: production, distribution,and exhibition.' This Note will examine the trend, rekindled duringthe Reagan administration, of major movie producers and distributorsreentering, through the acquisition of both individual theaters andlarge motion picture theater circuits, the business of exhibiting "firstrun!" motion pictures in the United States.

This exploration will commence with a brief historical overviewof the monopolistic practices that existed in the industry and the re-sulting divorcement of the business of motion picture exhibition fromdistribution and production, which took place in the 1940s as a resultof United States v. Paramount Pictures, Inc.3 The focus will nextshift to the deregulatory scheme of the Reagan Administration, withspecific attention paid to that Administration's policies towards anti-

1. See Ralph Cassady, Jr., Impact of the Paramount Decision on Motion PictureDistribution and Price Making, 31 S. CAL. L. REV. 150 (1958).

2. To obtain the maximum revenue from motion pictures, they are released in a seriesof runs to theaters across the country. "lFirst run" indicates a picture's initial widespreadrelease to "high gross" theaters. Subsequently, the films are released to lower gross theatersuntil the "eaming capacity of the film is finally depleted." See Cassady, supra note 1, at152; see also JOHN IZOD, HOLLYWOOD AND THE BOX OFFICE 1895-1986, 19 (1988). Recent-ly, with the advent of the VCR and cable television, subsequent runs for motion pictureshave been all but eliminated. These alternative outlets for exhibition have captured the dollarsonce available for second, third, or fourth run movie theaters. See United States v. ColumbiaPictures Inc., 507 F. Supp. 412, 418-19 (S.D.N.Y. 1980); see also Harry Boadwin, ProductMarket Definition for Video Programming, 86 COLUM. L. REv. 1210, 1229 (1986).

3. 66 F. Supp. 323 (S.D.N.Y. 1946), 70 F. Supp. 53 (S.D.N.Y. 1947), aff'd in partand rev'd in part, 334 U.S. 131 (1948), on remand, 85 F. Supp. 881 (S.D.N.Y. 1949), aff'd,339 U.S. 984 (1950); see also infra notes 6-88 and accompanying text.

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trust laws, and the motion picture industry in particular.4 Lastly, theeffects that the Reagan Administration's deregulations have had onthe entire motion picture industry will be examined.'

I. THE PARAMOUNT CASE

Since the formation of the motion picture industry by individualssuch as Thomas Edison, Louis and August Lumidre, C. FrancisJenkins, and Thomas Annat in the 1880s,6 movie producers and dis-tributors have attempted to control the industry by engaging in amultiplicity of anti-competitive tactics.7 Originally, monopolies wereattempted through the ownership and protection of patents on theequipment and technology needed to produce and exhibit motion pic-tures.8 As technology advanced, the power that these patents couldprovide decreased. In an attempt to maintain control, industry leaders,led by Edison, merged their companies and formed a cartel, the Mo-tion Picture Patents Company (the "MPPC").9 At first, the MPPCwielded its power by pooling all of the licenses and patents that itsindividual members held,"0 and it defended its position by bringing

4. See infra notes 89-183 and accompanying text.5. See infra notes 184-225 and accompanying text.6. See ROBERT H. STANLEY, THE CELLULOID EMPIRE 1-49 (1978); see also IZOD,

supra note 2, at 1-7.7. See MICHAEL CONANT, ANTITRUST IN THE MOTION PIcTuRE INDUSTRY 16-17

(1960); see also IZOD, supra note 2, 'at 1-38; Cassady, supra note 1, at 153.8. Patents were held for the raw film and cameras needed to make motion pictures and

for the projectors that were needed to exhibit them. As technology in the motion picturebusiness was still in a pre-industrialized stage, ownership of these patents gave Edison andhis contemporaries an opportunity to control the entire business. These individuals defendedtheir power vigorously by bringing a continuum of lawsuits against anyone who infringed onany of their patent rights. See e.g., Edison v. American Mutoscop & Biograph Co., 151 Fed.767 (2d Cir. 1907); Edison v. American Mutoscope & Biograph Co., 144 Fed. 121(C.C.S.D.N.Y. 1906); American Mutoscope & Biograph Co. v. Edison Mfg. Co., 137 Fed.262 (C.C.D.N.J. 1905); Edison v. American Mutoscope & Biograph Co., 127 Fed. 361(C.C.S.D.N.Y. 1904); Armat v. Edison, 125 Fed. 939 (2d Cir. 1903); Edison v. Lubin, 122Fed. 240 (3d Cir. 1903); Edison v. American Mutoscope & Biograph Co., 114 Fed. 926 (2dCir. 1902). For a thorough discussion of the use of law suits to defend these patents, seeIZOD, supra note 2, at 1-6.

9. The members of the MPPC were: Biograph, Edison, Essanay, Gaumont, Kalem,Lubin, M61i6s, Path6 Frares, Selig, and Vitagraph. For a detailed study of the history of theMPPC, see Ralph Cassady, Jr., Monopoly in Motion Picture Production and Distribution:1908-1915, 32 S. CAL L. REV. 325, 329-50 (1959).

10. See RAISE V. JENKINS, IMAGES AND ENTERPRISE: TECHNOLOGY AND THE AMERICANPHOTOGRAPHIC INDUSTRY 1839 TO 1925, 285 (1975). The trust operated by licensing itspatents to exhibitors on the condition that these exhibitors not use machinery and materialson or together with the machinery and materials that the MPPC had licensed.

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numerous lawsuits against those who infringed on their rights." Atthe same time, motion picture exchanges developed 2 to distributethe movies that the MPPC was producing. These exchanges becamequite profitable and as they cultivated, the MPPC "initiated forwardvertical integration"13 by purchasing most of the major exchanges inthe nation."4 As the MPPC appropriated exchanges, they institutedpractices that were designed to increase their bargaining power andtheir ability to control the exhibitors who needed their product. Usingtheir patents to force compliance from exhibitors, the MPPC imposedrestrictions on these exhibitors which included using a system of dis-tribution based on runs,' 5 zones, 16 and clearances. 17 The MPPC'ssuccessful control over distribution was short-lived though. It came toan end with the first motion picture antitrust action," which was ini-

11. See, e.g., Motion Picture Patents Co. v. Universal Film Mfg. Co., 235 F. 398(1916), aff'd, 243 U.S. 502 (1917); Motion Picture Patents Co. v. Independent Motion

Pictures Co., 200 F. 411 (2d Cir. 1912); Motion Picture Patents Co. v. Laemmle, 186 F. 641(C.C.S.D.N.Y. 1911); Motion Picture Patents Co. v. Champion Film Co., 183 F. 986(C.C.S.D.N.Y. 1910); Motion Picture Patents Co. v. Laemmle, 178 F. 104 (C.C.S.D.N.Y.1910); Motion Picture Patents Co. v. Ullman, 186 F. 174 (C.C.S.D.N.Y. 1910); MotionPicture Patents Co. v. New York Motion Picture Co., 174 F. 51 (C.C.E.D.N.Y. 1909).

12. Motion picture exchanges were the first attempt at organized distribution. Theypooled pictures from many different producers and distributed them to theaters across theirregion. See CONANT, supra note 7, at 18.

13. See JENKINS, supra note 10, at 287. With vertical integration a company acquiresthe firms above and below it on the production line. In the motion picture industry, verticalintegration refers to one company that produces, distributes and exhibits films. PAUL SOLMAN& THOmS FRIEDMAN, LIFE AND DEATH ON THE CORPORATE BATTEFIEID-HOW COMPA-NIES WIN, LosE, SURvIVE 84 (1982).

14. These acquisitions were made by the General Film Company. The General FilmCompany was a licensee of the MPPC and was operated by members of the MPPC. Thecompany was created specifically for the purpose of acquiring exchanges. See Cassady, supranote 9, at 355-59; see also IZOD, supra note 2, at 18; JENKINS, supra note 10, at 287.

15. See infra note 2.16. "Zones" are geographic boundaries. Within each zone a distributor would only

release a particular motion picture to one theater for exhibition. This practice ensures that thedistributor will obtain the largest audience for a film and it prevents other theaters in closeproximity from competing for the same customers who might wish to see the particularmovie. See MAE DENA HUETrIG, ECONOMIC CONTROL. OF THE MOTION PICTURE INDUSTRY125 (1944). Giving preference to MPPC-licensed exhibitors through the use of overly broadzones would prohibit nonmember exhibitors from the competition for audience dollars.

17. "Clearance" relates to the amount of time that, by contract, must elapse between theend of the first run of a motion picture and the beginning of its subsequent runs. Longerclearances provide more first run revenues for a picture. If a clearance is long enough, apicture will have no subsequent run value. See Cassady, supra note 1, at 334 n.49. With thereduction in subsequent run value, those exhibitors which showed later runnings of a filmwere effectively put out of business.

18. United States v. Motion Picture Patents Co., 225 F. 800 (E.D. Pa. 1915), appeal

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tiated by the head of one of the few exchanges that the MPPC didnot operate.19 This case stripped the trust of its power by holdingthat the defendants had used their patents to unreasonably restraintrade. As a result of their use of unreasonable restrictions, the defen-dants had "monopolized a large part of the interstate commerce infilms, cameras, projecting machines, and other articles of commerceaccessory to the motion picture business."20 The trust was terminatedbecause they could no longer use their patents to impose undue re-strictions. As one commentator has explained, "a patent owner couldnot extend the scope of the patent by restricting the use to materialsnecessary for the operation but forming no part of the patented inven-tion."

21

Although this decision brought an end to the MPPC, it was notsuccessful in curtailing the control that motion picture producers anddistributors had by now gained. From the ashes of the MPPC arosethe first attempt at a national distribution system, and this eventuallyled to the first fully integrated studio, Paramount Pictures Corporation("Paramount").2 Paramount, as a producer, had contracts with manyof the most popular film stars.2 They were able to use the box of-fice appeal of their stars,24 together with their new national distribu-tion capabilities, to create a new mechanism for control, block book-ing.' While Paramount was a dominant force in the industry, other

dismissed by stipulation, 247 U.S. 524 (1918) (defendant was found to have engaged inunreasonable restraint of trade and to have monopolized commerce in films, cameras, projec-tors, and accessories).

19. See IZOD, supra note 2, at 25.20. Motion Picture Patent Co., 225 F. at 811.21. Charles H. Grant, Anti-Competitive Practices in the Motion Picture Industry and

Judicial Support of Anti-Blind Bidding Statutes, 13 COLUM.-VLA J.L. & ARTS 349, 352(1989).

22. At this time, film distribution was accomplished by either individual producerstaking a motion picture to different theaters around the country or by exchanges distributingpictures in separate markets around the country. Paramount was initially formed by W.W.Hodskin with the hopes of becoming a national distributor of films. See IZOD, supra note 2,at 45. In 1916, Paramount merged with Adolph Zukor's Famous Players company to becomethe first company involved in production and national distribution. Thus, the first studio wasformed. See Simon N. Whitney, Antitrust Policies and the Motion Picture Industry, in THEAMERICAN MOvIE INDUSTRY: THE BUSINESS OF MOTION PICTURES 163 (Gorham Kindem ed.1982) [hereinafter THE AMERICAN MOvIE INDUSTRY].

23. See Gorham Kindem, Hollywood's Movie Star System. A Historical Overview, inTHE AMERICAN MOVIE INDUSTRY, supra note 22, at 82-83.

24. See Cassady, supra note 1, at 154-55.25. Block booking is the practice of licensing, or offering for license, one feature, or

group of features, upon condition that the exhibitor also license another feature, or group offeatures, released by the distributor during a given period. See United States v. Paramount

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companies also gained controlling interests by engaging in similarpractices.26 Needless to say, block booking along with the now wellestablished run-zone-clearance system27 angered the exhibitors whowere forced to suffer the consequences of their use. In response tothese practices, and in an attempt to gain some bargaining power inthe industry, exhibitors began to join together to form chains and cir-cuits. 28 By 1917, the First National Exhibitors Circuit was formed.This was the first national merger of high quality first run theaters.29

"Circuit booking, as it came to be called, became a recognized meth-od of defense on the part of exhibitors against the dominant produc-ers."30

By the 1920s, these circuits had gained substantial market domi-nation by engaging in anti-competitive practices of their own.31 As anatural consequence of the power that these circuits had gained, "con-trol of these cinemas meant control of the [entire] industry, and theybecame targets for purchase by the big producers."32 The studio'spurchasing was influenced by the realization that if they could controlevery level in the motion picture industry, from production down toexhibition, they would not only be able to control prices and ensureaccess to screens for the exhibition of their own pictures,33 but theywould also be able to prevent competition from small independentproducers and thus gain complete control over the entire industry.As the studios continued to purchase exhibitors, they began to engagein practices that were designed to make this complete control a reali-

Pictures, 66 F. Supp. 323, 333 (S.D.N.Y. 1946). Block booking ensures outlets for a motionpicture regardless of its quality or box office potential. As Paramount had the stars thattheater owners wanted, they were forced to take Paramount's less popular pictures if theywere to hope to have any of the popular ones. Id, see also JENKINS, supra note 10, at 294.

26. These other "principal concerns" were: First National, Fox, Metro (controlled byLoew's, Inc.), Path6, United Artists, Universal, Vitagraph, and Warner Brothers. See Cassady,supra note 1, at 155.

27. See supra notes 15-17 and accompanying text; see also IZOD supra note 2, at 40.28. See IZOD, supra note 2, at 48-49; JENKINS, supra note 10, at 294; Whitney, supra

note 22, at 163.29. See Gerald E. Phillips, The Recent Acquisition of Theater Circuits by Major Dis-

tributors, 5 ENT. & SPORTS LAW. 1, 2 (1987).30. HUEMrG, supra note 16, at 22.31. Many circuits were eventually charged with violating the Sherman Act. See infra

note 36; see also HUETTIG, supra note 16, at 22-23 (describing the case of the StanleyBooking Corporation of Philadelphia).

32. See IZOD, supra note 2, at 40-41.33. See Cassady, supra note 1, at 156.34. See CONANT, supra note 7, at 37 ("By monopolizing the final marketing outlet they

[the majors] successfully curtailed entry by independent producers.").

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ty. These activities included giving exhibition preferences to their ownpictures and to those of the other major studios by using extendedclearances, creating overly broad zones for affiliated exhibitors, andrefusing to exhibit pictures produced by independent producers. Withsuch policies and preferential practices quickly becoming the rule inthe industry, and studio owned circuits gaining command over entireexhibition markets, the government began an attempt at interven-tion.

35

The government's response to these practices came in the formof numerous law suits and court cases brought against both the cir-cuits and the distributors.' Two of the most notable attacks 37 werethe government's antitrust charges brought against distributors andexhibitors in both the Los Angeles' and Chicago39 markets. Thesesuits charged the defendants with illegally restraining trade by adopt-ing various anti-competitive practices including the use of arbitraryclearances, discriminatory zoning methods, and block booking. Al-though the government succeeded in forcing the defendants to signconsent decrees restricting their conduct,4 they ultimately lost thebattle. These cases, like their predecessors, had very little effect oncurtailing the growing anti-competitive atmosphere that, by this time,

35. See k at 43-57.36. See, e.g., United States v. Griffith Amusement Co., 68 F. Supp 180 (W.D. Okla.

1946), rev'd 334 U.S. 100 (1948); United States v. Schine Chain Theaters, Inc., 63 F. Supp.229 (W.D.N.Y. 1945), a.ffd in part and rev'd in part, 334 U.S. 110 (1948); United States v.Crescent Amusement Co., 31 F. Supp. 730 (M.D. Tenn. 1940), affid in part and rev'd inpart, 323 U.S. 173 (1944); United States v. Interstate Circuit, Inc., 20 F. Supp. 868 (N.D.Tex. 1937), remanded, 304 U.S. 55 (1938), af'd, 306 U.S. 208 (1939); United States v. FirstNat'l Pictures, Inc., 34 F.2d 815 (S.D.N.Y. 1929), rev'd, 282 U.S. 44 (1930); see also Whit-ney, supra note 22, at 168.

37. In addition to these two cases, the governments suit against the Paramount FamousLasky studio was as equally well-known. This suit charged the defendants with the use ofnefarious arbitration practices and unfair penalties when dealing with independent theaters. Theuse of these practices was found to be a violation of the Sherman Act. See United States v.Paramount Famous Lasky Corp., 34 F.2d 984 (S.D.N.Y. 1929), aff'd 282 U.S. 30 (1930).

38. See United States v. Fox West Coast Theaters, 1932-1939 Trade Cas. (CCH)55,018 (S.D. Cal. 1932).

39. See United States v. Balaban & Katz Corp., 1932-1939 Trade Cas. (CCH) I 55,001(N.D. III. 1932).

40. See supra notes 38-39. The Fox decree enjoined the defendants from the use ofcertain alleged unfair discriminations in the method of zoning theaters for exhibition ofmotion pictures. The Balaban & Katz decree enjoined the defendants from: (1) grantingunreasonable clearances; (2) restraining unaffiliated theaters from contracting for fust runpictures; (3) acquiring the management or booking control, without a substantial proprietaryinterest, of motion picture theaters; and (4) leasing more first run pictures than is reasonablynecessary for the conduct of their respective businesses.

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had taken over the industry.41

By the end of the 1930s, with its laissez-faire attitude, the major-ity of the most powerful circuits had been purchased by the majorstudios.4 2 Blatantly anti-competitive activity became the norm in theindustry, and as a result, the government rejuvenated its attempts atcurtailing these practices. The Justice Department started to bringmore lawsuits in an attempt to enjoin the monopolistic activities ofthese circuits,43 and in 1938 finally took a major step in seeking toend the now rampant activity. In 1938, after "15 years of intensiveinvestigation," the government, with the conviction that it had astrong enough case against the nation's leading motion picture stu-dios,"5 filed the Paramount case.

The suit against the predominant motion picture studios wasbrought under § 4 of the Sherman Act.' The defendants were divid-ed into three groups and were classified as either "major" or "minor"defendants.47 The major defendants were Loew's, Inc., ParamountPictures, Inc., Radio-Keith-Orpheum Corp., Twentieth Century-FoxFilm Corp., and Warner Bros. Pictures, Inc., all of whom produced,distributed, and exhibited motion pictures.48 The minor defendantswere Columbia Pictures Corp. and Universal Corp. both of whomproduced and distributed motion pictures, and United Artists Corp.,which only distributed motion pictures. Only the major defendantsowned or controlled motion picture theaters. "The complaint chargedthat the producer defendants had attempted to monopolize and hadmonopolized the production of motion pictures." 9 Furthermore, thecomplaint charged that all of the defendants had attempted to and didconstrain and monopolize interstate trade in the distribution and exhi-bition of motion pictures."

41. See Cassady, supra note 1, at 156.42. See CONANT, supra note 7, at 82.43. See, e.g., Schine Chain Theaters v. United States, 334 U.S. 110 (1948); United

States v. Griffith, 334 U.S. 100 (1948); United States v. Crescent Amusement Co., 323 U.S.173 (1944); United States v. Interstate Circuit Inc., 20 F. Supp. 868 (N.D. Tex. 1937).

44. STANLEY, supra note 6, at 113.45. Cassady, supra note 1, at 157.46. 29 Stat. 209 (1890) (codified in 15 U.S.C. §§ 1-7 (1982)).47. United States v. Paramount Pictures, Inc., 66 F. Supp. at 329-30. For the purposes

of this Note, all the defendants will be referred to as the "Paramount defendants," unlessotherwise specified.

48. Id.49. id.50. See Cassady, supra note 1, at 157. The major defendants had to give preferential

treatment to the minor defendants because the majors could not produce enough motion

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Before the case came to trial, the government yielded to pressurefrom the studios, and the major defendants were allowed to settlewith the government by signing a consent decree on November 20,1940."1 The government, relying on the faith of the defendants tocurtail their past behavior and the strength of the decree to put anend to the illegal activities that had taken over the industry, furtherbacked away from taking a strong stance by providing for the expira-tion of the decree after only a three year period.52 Specifically, thedecree enjoined the consenting defendants as follows: (1) block book-ing was limited to no more than five pictures; (2) blind bidding53

was prohibited; (3) the use of unreasonable clearances was prohibited;(4) forced rentals were abolished; (5) limits were placed on the rightsof distributors to refuse to license motion pictures to exhibitors; and(6) the defendants were prohibited from engaging in a "general pro-gram of theater acquisition."' The decree also created an arbitrationboard that was designed to resolve disputes arising between indepen-dent theater owners and the Paramount defendants.55 This decree,like the ones before it, was unsuccessful in bringing about change inthe industry because the government did not demand the separation ofproduction and distribution from exhibition. The arbitration boardproved to be unsuccessful, and other regulations were unhelpful. Atthe expiration of the decree's three year life, affiliated circuits stillcontrolled exhibition, and independent production had gained no ad-vances.

56

Determined to free up trade and create competition by eliminat-ing the monopolistic strangle hold that the Paramount defendants stillmaintained, the Justice Department, late in the summer of 1944, reac-tivated the Paramount case and asked the District Court for theSouthern District of New York to impose all of the remedies of the

pictures to completely fill their screens and they needed the product that the minors couldprovide. See IZOD, supra note 2, at 86.

51. United States v. Paramount Pictures, Inc., 1940-1943 Trade Cas. (CCH) 56,072(S.D.N.Y. 1940).

52. Id. However, the government reserved the right to reinstate the case at the expira-tion of the three year period. Id. at 298.

53. Blind bidding is the practice whereby a motion picture distributor requires exhibitorsto bid on the licensing or rental of a motion picture without first having an opportunity toview the film. See Allied Artists Pictures Corp. v. Rhodes, 496 F. Supp. 408, 433 (S.D.Ohio 1980), afrd in part, remanded on other grounds, 679 F.2d 656 (6th Cir. 1982).

54. See Paramount, 1940-1943 Trade Cas. (CCH) 1 56,072, at 289-94.55. Id.56. See CONANT, supra note 7, at 97.

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amended complaint with specific emphasis placed on forcing the di-vestiture of the theaters by the defendants.'7 By that point in time,the Paramount defendants had gained control over 17.35% of thenation's theaters." This seemingly small percentage of ownershipmasked the reality that the defendants controlled 90% of the mostsignificant theaters in the major markets around the country. 9 Thiscontrol of prime exhibition coupled with the fact that at the sametime the defendants distributed 75% of all pictures in this country,'is demonstrative evidence that the Paramount defendants had fullyattained their long-term goal to completely control the distributionmarket for first run motion pictures in the United States.61

It was under these conditions that the court reacted. Although thedistrict court62 did not find that the major defendants had monopo-lized production in the industry, the did find that the distributionsystem then used by the defendants was restraining trade and wasresulting in numerous violations of the Sherman Act.63 Pursuant toits decision, the court went on to issue a decree in December1946.' The decree prohibited many of the complained of activitiessuch as: the use of excessive zones and clearances, forced blockbooking, fixing admission prices, expansion in theater ownership, andjoint theater ownership by the defendants or between any defendantand an independent theater owner. However, the remedy of divorcingmotion picture exhibition from production and distribution, as request-ed by the government, was found to be unnecessary.65 As an alter-native remedy for correcting the illegal distribution system then in

57. See United States v. Paramount Pictures, Inc., 66 F. Supp. 323 (S.D.N.Y. 1946); see

also, STANLEY, supra note 6, at 134.

58. United States v. Paramount Pictures, Inc., 70 F. Supp. 53, 67 (S.D.N.Y. 1946)

(finding 118).59. See CONANT, supra note 7, at 82.60. Id.61. See Paramount, 70 F. Supp. at 70-71 (findings 146-51). By filling 90% of the best

theaters with 75% of the movies that they exhibited, the studios had blocked access to

independent producers and distributors and had effectively eliminated competition for audiencedollars from non-affiliated theaters.

62. In actuality, the case was originally tried before a three judge expediting courL SeeUnited States v. Loew's, Inc., 1980-2 Trade Cas. (CCH) 63,553 at 76,951 (S.D.N.Y. 1980);see also infra note 67.

63. Paramount, 70 F. Supp. 53 (findings of fact and conclusions of law); Paramount,66 F. Supp. 323 (S.D.N.Y. 1946).

64. United States v. Paramount Pictures, Inc., 1946-1947 Trade Cas. (CCH) 57,526(S.D.N.Y. 1946).

65. Paramount, 66 F. Supp. at 353.

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place, the court mandated that a system of competitive bidding ineach run be instituted, which would be open to all theaters.'

On appeal to the Supreme Court,67 most of the lower court rul-ings relating to the illegality of trade practices carried on by the de-fendants were affirmed." As for the remedy to be applied, the Su-preme Court reversed the district court's mandate of instituting acompetitive bidding procedure. The Court found that this was not aworkable solution,' and that such a system "involves the judiciaryso deeply in the daily operation of this nation-wide business andpromises such dubious benefits that it should not be undertaken."'The Court seemed to be more concerned with vertical integration, andinstead of the bidding system, it ordered that on remand the districtcourt begin anew in considering whether or not the remedy of theaterdivestiture was a more appropriate remedy.71

On remand from the Supreme Court, and before any furtherhearings in the case, RKO and Paramount consented to decrees di-vorcing their theater circuits and divesting certain theaters from thecircuits,' By voluntarily signing decrees before a final finding in thecase, both defendants were able to obtain more favorable terms intheir decrees than were the remaining major defendants. 3 As for theremaining six defendants, the final decision as to their fate was filed

66. Id.67. Appeal to the Supreme Court was direct from the district court because the case

was brought under § 2 of the Expediting Act of February 11, 1903, 32 U.S. Stat. 823. SeeUnited States v. Paramount Pictures, 334 U.S. 131, 140 n.1 (1948). The Expediting Act wasenacted in order to allow the Attorney General to seek expeditious treatment for cases, ofgeneral public importance, that were brought under the Sherman Act. HANS B. THORELUl,THE FEDERAL ANTITRUST Poucy: ORGANIZATION OF AN AMERICAN TRADmoN 537 (1954).

68. Paramount, 334 U.S. 131.69. See STANLEY, supra note 6, at 135.70. Paramount, 334 U.S. at 16271. Paramount, 334 U.S. at 166-75. The Court did not accept the government's conten-

tion that vertical integration was illegal per se. The Court set forth a two part test fordetermining whether vertical integration was illegal under the Sherman Act. This test turnedon "(1) the purpose or intent with which it was conceived, or (2) the power it creates andthe attendant purpose or intent." Id. at 174-75.

72. United States v. Paramount Pictures, 1948-1949 Trade Cas. (CCH) 1 62,377(S.D.N.Y. 1949) (Paramount Consent Decree); United States v. Paramount Pictures, 1948-1949Trade Cas. (CCH) 62,335 (S.D.N.Y. 1948) (RKO Consent Decree). It should be noted thatwithin all of the decrees that were issued, the court used the term "divorcement" to refer tothe required separation by the defendants of exhibition from production and distribution. Thecourt used the term 'divestment" to refer to the selling off of theaters by the circuits.

73. After the divorcement of their exhibition businesses, neither company was requiredto obtain the permission of the court before reentering the motion picture exhibition business.See RKO and Paramount consent decrees, supra note 72.

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on July 25, 1949.74

The district court held, as a matter of law, that the defendantshad conspired to and had restrained trade in the distribution and exhi-bition of motion pictures. The court concluded that vertical integra-tions were "a definite means of carrying out the restraints and con-spiracies" that were found to be illegal and in restraint of trade.75 Asa remedy, the court found that the divorcement of exhibition fromproduction-distribution was necessary in order to free up trade.76 Onthe basis of its decision, the district court issued a final decreeagainst the three major defendants that had not yet signed decrees,and against the three minor defendants.' The decree, as to the ex-hibitor defendants, was later supplemented with new decrees outliningthe details of their divorcement and theater divestiture.7"

The final result to arise from the government's long-pursued casewas that all of the named defendants were forced to end their illegalconduct and were required to begin licensing motion pictures on apicture-by-picture basis, solely upon the merits and without discrimi-nation in favor of affiliated theaters, circuit theaters, or others. 9 Fur-thermore, and equally as important, the decrees provided the govern-ment with their requested remedy of the divestiture of specific the-aters as well as the divorcement of theater circuits by the major de-fendants."0 This mandate forced the defendants to divorce theaterownership from their control by creating independent "theater" and"picture" companies that would be separately owned and which werestrictly prohibited from attempting to influence one another's con-duct."1 The new picture companies that were created could only en-

74. United States v. Paramount Pictures, Inc., 85 F. Supp. 881 (S.D.N.Y. 1949), aff'dper curiam, 339 U.S. 974 (1950).

75. Paramount, 85 F. Supp. at 893.76. Id. at 896.77. United States v. Loew's Inc., 1950-1951 Trade Cas. (CCH) 1 62,573 (S.D.N.Y

1950).78. United States v. Loew's Inc., 1952-1953 Trade Cas. (CCH) 1 67,228 (S.D.N.Y

1952) (Loew's Consent Decree); United States v. Loew's Inc., 1950 Trade Cas. (CCH)62,765 (S.D.N.Y. 1951) (Warner Consent Decree); United States v. Loew's Inc., 1950-1951

Trade Cas. (CCH) 62,861 (S.D.N.Y. 1951) (Twentieth Century-Fox Consent Decree).79. See, e.g., Loew's, 1950 Trade Cas. (CCH) 62,573, 63,681-82 (S.D.N.Y. 1950).80. See STANLEY, supra note 6, at 135.81. See, e.g., Loews, 1950-1951 Trade Cas. (CCH) 62,765, at 64,273 (Warner Con-

sent Judgement). As a result of the divorcement requirement, Paramount split into ParamountPictures Corporation and United Paramount Theaters, and RICO separated into RKO PicturesCorporation and RKO Theaters Corporation. M-G-M sold its theaters to Loew's, Inc. Twenti-eth Century-Fox sold its theaters to National Theaters, Inc. Warner Brothers's theaters were

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ter the exhibition business, and the new theater companies that werecreated could only enter the distribution business after petitioning thecourt, and "upon showing that any such engagement shall not unrea-sonably restrain competition in the distribution or exhibition of mo-tion pictures."' Furthermore, the new theater companies could onlyacquire additional theaters in the limited situations outlined in thedecrees, or with the court's consent after showing that such acquisi-tion would not restrain competition. 3

Fourteen years after the original proceedings had begun, the gov-ernment had finally succeeded in loosening the grip that the studioshad long held over the entire industry. By eliminating the dominationof vertically integrated studios, the hold over motion picture distribu-tion was sufficiently weakened to give independent producers accessto screens and a chance to prosper in the industry. The number ofindependent producers 4 skyrocketed from 70 in 1946 to almost 170in 1957.5 As early as 1953, the Justice Department found that thedecrees had helped start to bring about arms length dealing in theindustry.86 "After Paramount, competitive bidding and competitivenegotiations became the predominant method of film licensing."87

Independent theaters were also given a chance to compete equally forthe right to exhibit first run movies.8

II. DEREGULATION UNDER REAGAN

Although in the ensuing years suits were brought alleging viola-

acquired by the Stanley Warner Corporation. See Grant, supra note 21, at 361.82. Loew's, 1950-1951 Trade Cas. (CCH) 1 62,765, at 64,273 (Warner Consent Judg-

ment).83. Id. at 64,266.84. The independence of these producers is debatable, as they still needed the studios to

aid in the financing and distribution of their films. See STANLEY, supra note 6, at 144.85. See CONANT, supra note 7, at 113.86. See id. at 110 ("In spite of the slow progress of divorcement and the continued

family interrelationships, the facts seem to support a finding that divorcement has beeneffective. The production-distribution firms deal at arm's length with their former circuits.This was the conclusion of the Justice Department in 1953.").

87. William J. Bomer, Note, Motion Picture Split Agreements: An Antitrust Analysis, 52FORDHAM L. REV. 159, 164 (1983).

88. Although the independent exhibitors had the opportunity to compete, many were hurtby divorcement and divestiture. Studios no longer distributed as many films and competitionfor the highest quality motion pictures increased with competitive bidding. As a result, manyindividual theaters were put out of business. See SUZANNE M. DONAHUE, AMERICAN FILMDISTRIBUTION: THE CHANGING MARKETPLACE 35 (1987); Grant, supra note 21, at 361;Whitney, supra note 22, at 174.

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tions of the Sherman Act by both distributors and exhibitors, 9 itwas not until Ronald Reagan took over as President of the UnitedStates in 1980 that the studios were once again allowed to becomevertically integrated and swallow up the exhibition market in theUnited States. As President Reagan moved his belongings into hisnew residence on Pennsylvania Avenue, this country was about toenter what has been called one of the greatest periods of deregulationand "nonenforcement" of the antitrust laws since the 1930s.90 Rea-gan brought with him the desire to bring about vast legislative re-form9' by instituting a traditional laissez-faire attitude that was de-signed to "reduce the government's role in business."92 As Reaganhad the opportunity to shape the Justice Department by appointingnew Assistant Attorneys General, it became apparent that theAdministration's policy of promoting free competition was one of"narrowing rather than expanding the scope of antitrust laws."93

Reagan's first Assistant Attorney General, William Baxter, 4 hasbeen described as having as one of his agendas, the "trivialization ofthe dominant antitrust thinking."" It is claimed that he pictures thisdominant thinking as "wrongheaded, fuzzy, unworkable, protectionist,and perverse." 6

89. See infra notes 206-18 and accompanying text (relating to block booking and splitagreements).

90. Eleanor M. Fox & Lawrence A. Sullivan, Antitrust-Retrospective and Prospective:

Where are We Coming From? Where are We Going?, 62 N.Y.U. L. REV. 936, 941-42

(1987). This earlier period of nonenforcement was demonstrated by the government's lack ofprosecution of the Paramount defendants in the 1930s. See supra section .

91. See 60 Minutes With Douglas Ginsburg, Assistant Attorney General Antitrust

Division, 55 ANTITRUST L. 255, 260 (1986) [hereinafter Ginsburg] (when asked what his

personal priorities were as Assistant Attorney General, he replied, -legislative reform, legisla-

tive reform, legislative reform"). This desire to bring about change should not be seen as

unusual. Every administration has used litigation to implement their policies. See Thomas J.Campbell, The Antitrust Record of the First Reagan Administration, 64 TEX. L. REV. 353,354 (1985).

92. See Fox & Sullivan, supra note 90, at 944-45.93. Campbell, supra note 91, at 353.94. Baxter served as Assistant Attorney General for the Antitrust Division from 1981 to

1984. As an arm of the executive branch of the government, the enforcement policies of theDepartment of Justice "reflect closely the current views of the administration in power on

antitrust policing." See JERROLD G. VAN Cisp, THE FEDERAL ANTITRUsT LAws 43 (1975).95. Fox & Sullivan, supra note 90, at 945.96. Id. Most commentators will agree that antitrust enforcement has become obfuscated,

see also generally Nolan E. Clark, Antitrust Comes Full Circle: The Return to the Carteliza-

tion Standard, 38 VAND. L. REV. 1125, 1125 (1985) (noting that "for decades, Sherman Actdoctrines have been murky and confused"); William L. Letwin, Congress and the Sherman

Antitrust Law: 1887-1890, 23 U. Cm. L. REV. 221, 222 (1956) (stating that "[it should not

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Under Reagan, the long adhered to traditional concerns thathelped Congress shape this nation's first antitrust law, the ShermanAct,97 were cast aside9 in favor of an alternative school ofthought." No longer was the main emphasis placed on the fear that

be surprising ... that although the Sherman Act was passed by a virtually unanimous vote,and although its language is disarmingly clear, the administration and courts charged withenforcing it have experienced too much difficulty in settling its meaning").

97. There is a significant debate about the legislative history of the Sherman Act, whatCongress's purpose was in passing it, and how it should now be applied. This Note does notattempt to present a detailed description of the differing opinions; it only relates the approachto antitrust taken by the Reagan Administration.

The "traditional view" refers simply to the feeling that all forms of competitiverestraints that hurt small businesses or consumers deserve some legislative and judicialscrutiny on a fact sensitive basis. See John J. Flynn, The "Is" and "Ought" of VerticalRestraints after Monsanto Co. v. Spray-Rite Service Corp., 71 CORNN.L L. REV. 1095 (1986).In the words of two commentators:

[A]ntitrust traditionally had two central concerns. The first was political-distrust ofbigness and of fewness of competitors as well as a policy preference for diversityand opportunity for the unestablished. The second was socioeconomic, especially asseen from the vantage point of the small businessperson and the consumer. Anti-trust set fair rules for the competitive game. What mattered was getting a fair shotas an entrepreneur, and having choice and receiving a fair deal as a consumer.

Fox & Sullivan, supra note 90, at 944.The Reagan Administration's view runs afoul of these traditional concerns and is

described infra, note 99. Other commentators argue that because antitrust laws were passed toeliminate trusts, that purpose should be the only goal of enforcement today. See Clark, supranote 96. Lastly, there is also support from some commentators for a total repeal of all anti-trust laws. See DOMINICK T. ARMENTANO, ANTmUsT POuCY, THE CASE FOR REPEAL x-xi(1986).

98. In the words of one author.Traditional antitrust policy has collapsed like a house of cards. In just 10years-an extremely short time in matters of such importance-the antitrust regula-tory authorities have gone from an enthusiastic enforcement of traditional antitrustpolicy in the mid-1970s to a substantial rejection of much of the conventionalapproach in the mid-1980s.

ARMENTANO, supra note 97, at ix.99. See Robert Pitofsky, Does Antitrust Have a Future, 76 GEo. L.J. 321, 323 (1981);

see also William E. Kovacic, Reagan's Judicial Appointees and Antitrust in the 1990s, 60FORDHAM L. REv. 49, 54 (1990).

The Administration's conservative view is known by many names; it has been termed.neoclassical," "economic efficiency" and of course "Chicago School." See LAWRENCE AN-THONY SULLIVAN, HANDBOOK OF THE LAW OF ANTrrRUST 376 n.1 (1977); Frank H.Easterbrook, The Limits of Antitrust, 63 TEX. L. REV. 1, 13 (1984); Flynn, supra note 97, at1095 & 1132.

The basic tenets of this theory is to apply rigid economic models, as opposed tomaking fact sensitive determinations, when analyzing merger activity. See Flynn, supra note97, at 1125-42. But see Frank H. Easterbrook, Workable Antitrust Policy, 84 MICH. L. REV.1696 (1986) (arguing that the Chicago School does not blindly follow economic models). Theend result of this approach is to favor most forms of collaborative conduct. See infra notes121-27 and accompanying text. Judge Posner summed up the results of this school of

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big businesses were fencing out competitors from access to markets,and big business leaders were depriving the little man of a fairchance to participate in the governance of business.'ro

The Reagan Administration's neoclassical approach to antitrustlaw believed in a perfect market and favored applying strict modelsof economic efficiency that left no room for the realities of day today occurrences." 1 This view favored most forms of collaborationbecause it felt that they aided efficiency,"° apparently ignoring po-tential harms that might befall consumers. 3 While this view of an-titrust law still favored attacking the most severe anti-competitivepractices, 4 it proposed the adoption of a softened stance when ana-lyzing most types of merger activity. 5

The Administration used many tools'06 to accomplish its re-

thought-The welfare of a particular competitor who may be hurt as the result of some

trade practice is the concern not of the federal antitrust laws . . . but of stateunfair competition law. ....

The exclusion of competitors is cause for antitrust concern only if it im-pairs the health of the competitive process itself.

Roland Machinery Co. v. Dresser Industries, 749 F.2d 380, 394 (7th Cir. 1984) (citationsomitted).

100. See THORELLI, supra note 67, at 226. ("The government's natural role in the system

of free private enterprise was that of a patrolman policing the highways of commerce. It isthe duty of the modem patrolman to keep the road open for all and everyone and to pre-vent . . . [all types of] violations that will endanger and hence, in the end, slow down theoverall movement of the traffic.").

101. See Eddie Correia, Antitrust Policy after the Reagan Administration, 76 GEo. L.J.329, 335 (1987); Pitofsky, supra note 99, at 322-23. But see Charles F. Rule & David L.

Meyer, Toward a Merger Policy that Maximizes Consumer Welfare: Enforcement by Careful

Analysis, not by the Numbers, 35 ANTITRUST LJ. 251 (1990) (arguing that non-quantitativefactors are taken into consideration when analyzing the competitive effects of mergers underthe Reagan Administration's approach).

102. See Flynn, supra note 97, at 1101; Ginsburg, supra note 91, at 262; Malcolm R.Pfunder, Antitrust Law Developments 1989-1990: Developments in Merger Law and Enforce-

ment 1989-1990, 59 ANTIRUST L.J 319, 324 (1990).103. See generally Flynn, supra note 97, at 1125-42 (suggesting that the economic

analysis approach overlooks potential harms to consumers, including increased prices, and thusallows many mergers to proceed that should be prevented).

104. See infira notes 109-11 and accompanying text.105. See infra notes 121-27 and accompanying text.106. This note focuses 'on three of the "routes" used by the Administration: (1) the

issuance of guidelines, (2) "enforcement discretion," and (3) the use of amidi curiae briefs in

attempting to influence jurisprudence. See Campbell, supra note 91.Another approach that Reagan used to effectuate his desired policy aims was the use

of judicial appointments. Some commentators argue that the toning down of federal antitrustpolicy should be "substantially attributed to their efforts." See Kovacic, supra note 99, at 49.

Although court packing was not a novel tool in shaping policy, Reagan raised its use

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shaping of historic antitrust restrictions. One tool that was used topromulgate change was the issuance of guidelines' °7 that were de-signed to give practicing attorneys a guide to the Administration'spolicies when pursuing possible merger activity, and forewarn them asto when the Department was likely to challenge a merger.'08

While the basic tenets of these guidelines still seemed to supporttraditional -concerns about consumer welfare,"° other concerns wereabandoned. Horizontal restraints,"° in their purest form, were stilllooked at as being per se illegal;.' however, vertical restraints,"'once thought to reduce competition and foster illegal monopolisticstructures," were now often thought to aid competition and helpthe economic environment." 4 Even more astonishing, this conserva-tive approach to antitrust thinking adopted the view that the regula-tion of vertical restraints would actually harm consumers. 5

These guidelines were not met with open arms by all of those in

to new levels. Id.; see also ROBERT A. CARP & RONALD STEDHAM, THE FEDERAL COURTS111 (2d ed. 1991).

107. Of all of the guidelines issued by the Administration, three are most pertinent tothis Note: (1) U.S. Dep't of Justice 1982 Merger Guidelines, 47 Fed. Reg. 28,493 (June 30,1982); (2) U.S. Dep't of Justice 1984 Merger Guidelines, 49 Fed. Reg. 26,827 (June 29,1984); and (3) U.S. Dep't of Justice Vertical Restraint Guidelines, 50 Fed. Reg. 6263 (Feb.14, 1985).

108. See Ginsburg, supra note 91, at 267; U.S. Dept. of Justice 1984 Merger Guidelines,49 Fed. Reg. 26,827, 26,828 (1984).

109. See Fox & Sullivan, supra note 90, at 953; Ginsburg, supra note 91, at 270.110. Horizontal restraints exist where competitors conspire with each other to set prices,

restrain trade through combined control, and generally eliminate competition from outsidecompanies. See SULLIVAN, supra note 99, at 150-329.

111. See Campbell, supra note 91, at 362; Flynn, supra note 97, at 1101; Pitovsky,supra note 99, at 321; see also ARMENTANO, supra note 97, at 4 ("Antitrust in the 1980s isstill ... very much concerned with price-fixing and market division agreements betweencompetitors (horizontal agreements), and neither the antitrust authorities nor the courts haverelaxed their position that such arrangements are normally illegal per se."); Kovacic, supranote 99, at 63 (noting that "the Reagan Antitrust Division mounted an unprecedented programto detect and prosecute horizontal price fixing").

112. "Vertical restraints are arrangements between firms operating at different levels ofthe manufacturing or distribution chain (for example, between a manufacturer and a wholesal-er or a wholesaler and a retailer) that restrict the conditions under which firms may purchase,sell, or resell." Department of Justice Vertical Restraint Guidelines, 50 Fed. Reg. 6263, 6264(1985). See Sullivan, supra note 99, at 376.

113. See Fruehauf Corp. v. Federal Trade Comm., 603 F.2d 345, 353 (2d Cir. 1979); seealso supra section L

114. See Clark, supra note 96, at 1167; Kovacic, supra note 99, at 65 (noting that, "[t]oconservative antitrust scholars, vertical restraints almost invariably serve desirable efficiencyends").

115. See Campbell, supra note 91, at 369.

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the legal community.116 The biggest opponent of the vertical re-straint guidelines was possibly Congress itself, which did not believethat the courts should view them as persuasive. Feeling that theguidelines were "inconsistent with the congressional purpose in adopt-ing antitrust laws,"117 and that they were not an accurate representa-tion of the law, Congress asked the Justice Department to withdrawthem."' The Administration respectfully declined.119

Another tool that the Administration used to infuse its reformu-lated and toned down interpretation of antitrust law into the nationwas "enforcement discretion," as so eloquently termed by ProfessorCampbell. ° Gone was the fear that large scale mergers might sub-stantially lessen competition;12 large conglomerates were nowthought to bolster both economic efficiency and competition."n As aresult, the Administration's softened stance on anti-competitive prac-tices influenced all types of large scale mergers and corporate restruc-turing."n For example, the 3001 mergers in 1986, which broke athirteen-year record124 were easily surpassed by the 3487 mergers in1988.125 Of 'the majority of challenges that were brought against

116. See, e.g., NAAG Adopts Alternate Guidelines to Govern Vertical Restraints of Trade,ANTITRUST & TRADE REG. REP. (BNA) No. 1243, at 978 (Dec. 5, 1985) (finding that theDepartment of Justice's guidelines are an inaccurate reflection of law); Lawrence A. Sullivan,The Justice Department Guidelines on Mergers and Vertical Restraints: A Critique, 16ANTITRUST L. & EcoN. REv. 11, 18 (1984) ("In all of these respects the guidelines are

inconsistent with existing law and are also demonstrably unsound as a matter of policy.").117. See Flynn, supra note 97, at 1147.118. See HoUsE JUDICIARY COMMITEE, VERTICAL RESTRAINT GUIDELINES RESOLUTION,

H.R. 399, 99th Cong., 1st Sess. (1985); Ginsburg, supra note 91, at 267; see also infra notes139-40 and accompanying text.

119. See Ginsburg, supra note 91, at 267.120. See Campbell, supra note 91, at 361-64.121. According to then Assistant Attorney General Douglas Ginsburg, the Administration

"opposed federal proposals further to restructure or restrict merger and acquisition activity asunnecessary bits of legislation that would intrude into the area of state corporation law. It isour view that mergers perform beneficial functions in the economy and, in the absence ofcompetition problems, should not be inhibited by law." Ginsburg, supra note 91, at 256.

122. See ARMENTANO, supra note 97, at 1 (stating that, "[c]onglomerate and verticalintegration mergers-which rarely harbor any direct threat to restrict market output or reduceconsumer welfare-are now of only limited concern to the antitrust authorities"); ROBERT H.BORI, THE ANTITRUST PARADOX 406 (1978); see also Malcom R. Pfunder, Developments inMerger Law and Enforcement 1989-90, 59 ANITrRUST L.J. 319, 324 (1990).

123. Leslie Wayne, Buyouts Altering Face of Corporate America, N.Y. TIMES, Nov. 23,1985, at 1, col. 1.

124. See Number of Acquisitions in 1986 Shatters Grimm's 13 Year Record, 52 ANTI-TRUST & TRADE REG. REP. (BNA) No. 1302, at 269 (Feb. 12, 1987).

125. See U.S. DEP'T OF COMMERCE, STATISTICAL ABSTRACT OF THE UNITED

STATEs-1990 534 (1990). The full impact of this figure can be realized when it is corn-

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merger activity, almost all of the cases were initiated by private par-ties, and not by the Justice Department' 26 For example, between1981 and 1985, the Department of Justice challenged only twenty-eight mergers and throughout the entire Reagan Administration, thefederal agencies initiated no cases challenging conglomerate or verti-cal transactions.

127

While the Justice Department was not involved in preventingmergers, they did intervene on the side of mergers. This interventioncame in the form of the filing of amici curiae briefs with the Su-preme Court and appellate courts." s This approach to reshaping lawis not unusual; when an appellate court grants the Department's re-quest to intervene, it is acting in a similar vein as does the SupremeCourt when they request the views of the Justice Department 129 toaid them in deciding cases based on antitrust issues. 3 ' Most com-mentators agree that if an administration wants to narrow the scope ofa law,' intervention in private litigation is a route that they musttake. 32 This aggressive program of intervention'33 was met byCongress with as much hostility as were the Justice Department'smerger and vertical restraint guidelines."3 The most nefarious exam-ple of this can be seen in the case of Monsanto Co. v. Spray-Rite

pared with the 1245 mergers and acquisitions that occurred in 1978. U.S. DEP'T OF COM-MERCE, STATISTICAL ABSTRACT OF THE UNITED STATE-1980 575 (1980).

126. See Flynn, supra note 97, at 1102.127. See Fox & Sullivan, supra note 90, at 948; Kovacic, supra note 99, at 66; see also

Robert Pitofsky, New Definitions of Relevant Market and the Assault on Antitrust, 90 COLUM.L. REv. 1805, 1809 (1990) (noting that "[a]lthough there were roughly six times as manymergers of substantial size in 1987 compared to 1979, there was roughly one-third as muchgovernment enforcement"). But see Rule & Meyer, supra note 101, at 256-57 (arguing thatthe Reagan Administration challenged a substantially fewer percentage of mergers becausechanging economic conditions and increased clarity within merger guidelines resulted in thefiling of fewer anticompetitive mergers).

128. See Ginsburg, supra note 91, at 264. The administration had a policy of onlyintervening as amidi at the appellate level because material issues of fact were settled by thatstage in the litigation. Id.

129. The Supreme Court routinely seeks the opinions of those agencies responsible forenforcing different laws. See, e.g., Udall v. Tallman, 380 U.S. 1, 16 (1965) (suggesting thatthe Court pays great deference to those charged with enforcement of the law).

130. See Fox & Sullivan, supra note 90, at 354.131. See Campbell, supra note 91, at 354; Fox & Sullivan, supra note 90, at 951.132. As a corollary, if the administration wants to expand the law, "it can have this

influence by bringing its own cases." Campbell, supra note 91, at 354. But see, e.g., Flynn,supra note 97, at 1095 (commenting that the filing of amii briefs is an improper route forthe administration to follow).

133. See Fox & Sullivan, supra note 90, at 951.134. See supra notes 116-19 and accompanying text.

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Service Corp.135 In Monsanto, the Justice Department filed an ami-cus brief with the Supreme Court, unsuccessfully urging"s6 that theCourt overturn the long-established procedure of applying a per serule "'37 of illegality to agreements to maintain resale prices, and re-place it with the softened rule of reason test."" Congress was soangered by the filing, which went against its recently affirmed viewon the subject, that they placed a gag order on the Justice Departmentappropriations bill. 39 The order prohibited the Department fromspending any money on attempting to overturn they per se prohibitionon resale price maintenance, and asked the Attorney General to with-draw the vertical restraint guidelines which sought to avoid the per serule."

Along with this reformulated interpretation of traditional doctrine,

135. 465 U.S. 752 (1984).136. The Supreme Court rejected the Justice Department's argument in an eight to zero

decision. Justice White took no part in the decision of the case. Monsanto 465 U.S. at 753.137. In the context of an antitrust inquiry, per se illegality has been defined as "certain

agreements or practices which because of their pernicious effect on competition and lack ofany redeeming virtue are conclusively presumed to be unreasonable and therefore illegalwithout elaborate inquiry as to the precise harm they have caused or the business excuse fortheir use." Northern Pac. Ry. v. United States, 356 U.S. 1, 5 (1957).

138. Brief for the United States as Amicus Curiae in Support of Petitioner, Monsanto Co.v. Spray Rite Sew. Corp., 465 U.S. 752 (1984) (No. 82-914).

In Chicago Board of Trade v. United States, 246 U.S. 231 (1918), Justice Brandeisset forth a now famous definition of the rule'of reason test:

The true test of legality is whether the restraint imposed is such as merely regu-lates and perhaps thereby promotes competition or whether it is such as may sup-press or even destroy competition. To determine that question the court must ordi-narily consider the facts peculiar to the business to which the restraint is applied;its condition before and after the restraint was imposed; the nature of the restraintand its effect, actual or probable. The history of the restraint, the evil believed toexist, the reason for adopting the particular remedy, the purpose or end sought tobe attained, are all relevant facts.

Id. at 238.139. See Department of Commerce, Justice, and State, the Judiciary and Related Agencies

Appropriation Act, 1986, Pub. L. No. 99-180, § 605, 99 Stat. 1136, 1169-70 (1985).140. Id.; see also Congress Takes Affirmative Steps to Attack Vertical Restraint Guide-

lines, 49 ANTrrRUST & TRADE REG. REP. (BNA) No. 1244, at 1019-20 (Dec. 12, 1985). Inaddition, nineteen Senators and Representatives filed a brief as amicus curiae in the Monsantocase urging the Court to permit Congress to direct national antitrust policy and not allow itto be set by executive decision. See Brief for the Undersigned Senators and Representativesas amicus curiae, Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752 (1984) (No. 82-914).

It should be noted that this softened stance against retail price maintenance puts indoubt the Paramount decrees broad prohibitions on the fixing of admission prices. If studioshad wished to engage in such practices, it would appear that they might not have met anyresistance from the Justice Department

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the Administration introduced a new vocabulary that was designed toperpetuate its ideals.14 Many of the long standing and commonlyunderstood terms were replaced with new terms and new definitionsthat reflected the Administration's new policies."4 Professors Foxand Sullivan explore one of the most glorifying examples, the re-placement of "public good" with "consumer welfare." ' While"public good" was thought to relate solely to the consumer,' andwas reflected in decreased cost and increased choice, "consumer wel-fare" was looked at as the sum of both producer and consumer wel-fare.145 Thus, if as a result of certain practices, producers benefittedto a greater extent than consumers were harmed, "consumer welfare"was increased." So, while the shell of past antitrust laws still ex-isted, the substance of its past application and resulting impact had all

- but vanished.This laissez-faire attitude and new application of antitrust doc-

trine was used by the studios to reshape the motion picture industry.Under the Reagan Administration's policies, the Paramount consentdecrees were allowed to sit idle and unenforced. 47 With Reagan inthe White House, movie studios could once again "reassembl[e] thevertical integration surrendered in 1948."

The complete resurgence of vertical integration followed a cau-tious path that culminated in an explosion of purchasing in 1985. 4

"

141. See Fox & Sullivan, supra note 90, at 945-47.142. This was reflected in the guidelines that the Administration issued. See Betty Bock,

Commentary, The Shifting Vocabulary of Antitrust-Legal Linguistics in a Period of Change,36 CASE W. RES. L. REv. 362, 338 (1985).

143. Fox & Sullivan, supra note 90, at 946.144. "Congress meant to protect consumers and others from exploitation and bullying.

Congress did not value a dollar to producers equally with a dollar to consumers: nor did itvalue a dollar to exploiting producers equally with a dollar to striving entrepreneurs." EleanorM. Fox, Consumer Beware Chicago, 84 MicH. L. REV. 1714, 1715 n.5 (1986).

145. Id. at 1715; see also Fox & Sullivan, supra note 90, at 946.146. See BORI, supra note 122, at 90-106; see also Correia, supra note 101, at 331

(noting that "[tihe Chicago School teaches that the creation of market power which can beoffset by an accompanying reduction in production costs is socially benign even if it resultsin price increases to consumers"); Rule & Meyer, supra note 101, at 255 (describing mergerconduct that threatens consumers as that conduct which "threatens to raise prices and torestrict output without generating offsetting efficiency gains").

147. See Gary Arnold, The Party's Over; The 80s in Review, WASH. TiMES, Dec. 28,1989, at El.

148. Alexander Cockburn, The Mission: Reagan. Hollywood and the American Empire,THE NATION, Apr. 18, 1987, at 494.

149. Prior to 1963, Stanley Warner Pictures was granted permission to engage in theproduction and distribution of Cinamerica pictures. In the hopes of increasing the amount of

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The first attempt at reentry by a major defendant was initiated in1980 by Loew's Theaters, Inc. ("LTIT). 1 o LTI petitioned JudgePalmieri'5 t for total relief from its consent decree.1 52 LTI wantedpermission to enter the motion picture distribution industry. The courtdid not vacate the original decree, but it did grant LTI limited per-mission to enter the production and distribution business. This orderwas subject to a new decree prohibiting it from showing its ownpictures, and binding it to the same conduct restrictions in the origi-nal decrees." 3 This was the first substantive modification allowingreintegration to one of the original decrees.lm Although it did noth-

quality motion pictures available for exhibition, National General Corporation, subject to theTwentieth Century-Fox decree, was granted temporary permission to enter the production anddistribution business on June 24, 1963. This grant was further extended on two later occa-sions. See United States v. Loew's Inc., 1969 Trade Cas. (CCH) 72,767 (S.D.N.Y. 1969).

150. LTI was the successor to the New Theater Company, which was formed when theoriginal Loew's defendant to the Paramount case had to divorce its theater operations fromits production and distribution operations.

151. Judge Palmieri had presided over the decrees since they were handed down by thecourt. Judge Palmieri had this continuing authority over the defendants because of jurisdic-tional clauses in the decrees. See, e.g., United States v. Loew's Inc., 1952-53 Trade Cas.(CCH) 67,228 (S.D.N.Y. 1952) (Loew's Consent Decree, Section lI1(7)(b)). Furthermore, itis well established that "[a] court that enters an initial antitrust consent decree has theinherent power to modify that decree." John D. Anderson, Note, Modifications of AntitrustConsent Decrees: Over a Double Barrel, 84 MIcH. L. REv. 134 (1985).

152. Loew's, 1952-53 Trade Cas. (CCH) 67,228 (S.D.N.Y. 1952) (Loew's ConsentDecree).

153. United States v, Loew's Inc., 1980-1981 Trade Cas. (CCH) 63,662 (S.D.N.Y.1980). The court granted the requested relief in the hopes that "[w]ith the entry of Loew'sinto production and distribution, some addition to the limited number of top box officepictures can be expected." Id. at 77,553.

154. On July 25, 1974, the decrees had been modified to allow the divorced theatercircuits to acquire theaters newly created by or for the defendants without a court findingthat they would not result in a restraint of competition. See United States v. ParamountPictures, Inc., 1974-2 Trade Cas. (CCH) 75,378 (S.D.N.Y. 1974).

This modification was desired because of a clause in the original decrees that mandat-ed that the defendants petition the court before they acquired any beneficial interest in atheater. This permission would only be granted upon a showing that the acquisition would.not unduly restrain competition." See, e.g., United States v. Loew's Inc., 1952-53 Trade Cas.(CCH) 67,228, at 63,328 (S.D.N.Y. 1952) (Loew's Consent Judgement, Section IH(7)(b)).

In the years following Paramount, hundreds of applications to acquire theaters werefiled with the court. See generally United States v. Paramount Pictures, Inc., 1980-2 TradeCas. (CCH) 63,553 (S.D.N.Y. 1980) (reviewing the history of the courts role in the Para-mount case).

Also, in 1979, the Mann Theater Corporation of California ("Mann") petitioned thecourt for permission to acquire theaters in various domestic markets. Mann had acquired thetheater assets of National General Theaters Inc., the theater circuit that had been divorcedfrom Twentieth Century-Fox. The court granted Mann's request for a modification of the Foxdecree on February 14, 1980. The modification allowed Mann to acquire theaters on a

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ing to diminish the effects of the decrees, it signaled the beginning ofthe end for the restrictions that had been placed on the motion pictureindustry forty years prior.

The LTI decision was followed one year later by the purchase offorty-eight percent of the Walter Reade theater chain by ColumbiaPictures. 55 Technically this was not a "reentry," because Columbiahad never owned theaters in the past.' 56 Thus, Columbia had neverbeen barred from the exhibition business.157 Nevertheless, like otherdistribution companies, Columbia avoided the exhibition business outof fear of instigating a new round of legal battles with the JusticeDepartment. They had patiently waited for the ideal climate beforeentering the exhibition business, and the Reagan Administration pro-vided it. 5

These two initial transactions were followed by two years ofcautious observance by the studios. What the studios did not knowwas that during this period, Assistant Attorney General WilliamBaxter had begun a departmental review of almost all antitrust con-sent decrees that were over ten years old. The Department was re-viewing all decrees that were "either out of date, anticompetitive, orbased on theories out of favor with the Reagan Administration."159

According to Jeffrey I. Zukerman, special assistant to William Baxter,the review would affect most decrees restricting vertical conduct bythe defendants; 1" this included the Paramount decrees.16' Afterreview by the Justice Department, a decision had been reached by theend of 1981 that under the Administration's new pro-merger thinking,the decrees had "outlived their usefulness."162 The Department onits own volition decided that the safeguards that had been instigatedat the suggestion of the Supreme Court were no longer needed.

restricted basis for ten years and thereafter to make further acquisitions without having topetition the court. See Paramount, 1980-2 Trade Cas. (CCH) 63,553 at 76,951.

155. Andrew L. Yarrow, The Studios' Move on Theaters, N.Y. TIMES, Dec. 25, 1987, atDI, col. 3.

156. See supra notes 47-49 and accompanying text.157. See supra notes 77-83.158. Paul J. Tagliabue, Developments 1986-87: Antitrust Developments in Sports and

Entertainment, 56 ANTIrRUsT LJ. 341 (1987).159. Antitrust Division Begins Review of 014 Discredited Consent Decrees, ANTITRUST &

TRADE REG. REP. (BNA), No. 1032, at A-16 (Sept. 24, 1981).160. Id.161. Leslie M. Werner, U.S. to Rule on Lifting Movie Antitrust Decrees, N.Y. TIMES,

Feb. 4, 1985, at D2, col. 1.162. Yarrow, supra note 155, at 1.

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By 1983, the dam was beginning to crack. CBS, Inc. ("CBS")and Columbia Pictures, together with Home Box Office ("HBO")sought Justice Department approval for a joint venture that wouldcreate a new motion picture studio, TriStar Pictures. 63 Approvalwas sought because of the antitrust questions that arose from themarriage of producer Columbia with exhibitors CBS and HBO."6

Although such unions were one of the main concerns in the earliercase, the Justice Department investigated the venture and approved themerger. The Department went so far as to find that the creation ofthis new company would effectuate an increase rather than a decreasein competition within the industry.'65

The TriStar deal was followed a year later by the JusticeDepartment's providing the still-cautious studios with the green lightthat they had been waiting for. The Department took the initiativeand offered to support the studios if they sued to get back into thetheater business.' 66 In a press release dated February 4, 1985, theDepartment announced that they would no longer enforce the Para-mount decrees because of changed circumstances in the industry.67"Although no studios took up that offer, they undoubtedly saw thenew position as a clear signal that the Justice Department would nottry to block theater acquisitions. " '6 With this support from the Jus-tice Department, all that the studios needed was a successful courtchallenge seeking complete relief from one of the original restrictivedecrees. 69

This challenge came in 1986 when the newly formed TriStarPictures'70 purchased Loew's (now LTI) and petitioned the court fortotal relief from the original and subsequent Loew's decrees.' The

163. See Judi Hasson, HBO, CBS, Columbia May Become New Movie Giant, UNITEDPRESS INT'I, Sept. 14, 1983, BC cycle (available on LEXIS).

164. The legality of the deal was further put into doubt by the financing that HBO hadproposed. They offered to help finance the films that TriStar produced in exchange forexclusive pay television rights to the pictures. Exclusive engagement arrangements had beenspecifically banned by the original decrees. See supra note 79.

165. See Hasson, supra note 163.166. Yarrow, supra note 155, at 3.167. See Ed Cray, Hollywood Unchained, 6 CAL. LAW. 33, 54 (Feb. 1986).168. Id.169. Although the Justice Department could issue opinions on the subject, the final

decision still rested in the hands of the district court. See supra note 151.170. TriStar, as a new company, was not bound by the restraints promulgated by the

original decrees.171. United States v. Loew's Inc., 1980-1981 Trade Cas. (CCH) 63,662 (S.D.N.Y.

1980); United States v. Loew's Inc., 1952-1953 Trade Cas. (CCH) 67,228 (S.D.N.Y. 1952)

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Reagan Justice Department fully supported the merger of these twocompanies," 2 heeding the cries from the independent theater ownersthat the "loss of the decrees could jeopardize their continued existenceand would also hurt movie-goers." 3 Assistant Attorney General J.Paul McGrath sent a letter to Judge Palmieri suggesting that "it maybe appropriate for the court and the parties to consider whether atermination date" 74 should be added to the decrees. Furthermore,the Justice Department stated that it believed that "competition indistribution or exhibition would not be unreasonably restrained, evenif TriStar and Loew's dealt exclusively with one another." 7' Suc-cumbing to the pressure of the Justice Department, Judge Palmierigranted this request and vacated the decree. 76

As a result of the approval of the Loew's and TriStar deal, a"madcap rush to vertical reintegration"" began. For example, inAugust of 1986, Warner Bros. Inc., one of the original Paramountdefendants, petitioned the court for total relief from their decree'so that they could reenter the exhibition business with the purchase ofinterests in several theater chains. 79 Although the court at first onlygranted temporary relief,"'0 the appellate court did eventually grantWarner Bros. total relief from the original decree."' This left themable to reenter the exhibition business without any of the originalsafeguards left in place.

(Loew's Consent Decree).172. See Tagliabue, supra note 158, at 346.173. Werner, supra note 161, at 1.174. Al Delugach, Justice Won't Oppose Theater Ban on Studios; Antitrust Chief Says

Industry Isn't Interested in Seeking Change in Court, L.A. TIMEs, Feb. 7, 1985, at IVI.175. See Tagliabue, supra note 158, at 346. This is an amazing statement in light of the

strong stance that was taken against exclusivity contracts in the original case.176. Order of Judge Palmieri, June 18, 1987 (as reported in Tagliabue, supra note 158,

at 347).177. Nick Gilbert, You Kil Like 'B' Movies, FIN. WoRLD, Apr. 7, 1987, at 33.178. United States v. Loew's Inc., 1950-1951 Trade Cas. (CCH) 62,765 (S.D.N.Y.

1951) (Warner Consent Judgement).179. United States v. Loew's Inc., 882 F.2d 29, 30 (2d Cir. 1989).180. United States v. Loew's Inc., 705 F. Supp. 878 (S.D.N.Y. 1988). The court allowed

Warner to proceed with the purchases but continued to restrict their conduct as a distributorand ordered that they do business with the newly acquired theaters on an arms length basis.Id. at 885. In denying Wamer's petition for total relief, Judge Palmieri found that the motionpicture industry is a "concentrated industry in which there has been a recent trend towardvertical integration which appears significanL" Id. Judge Palmieri also expressed his fears thatthere was "a climate of non-compliance with the heart of the consent judgemens-that filmsbe licensed theater by theater, solely on the merits and without discrimination." Id.

181. Loew's, 882 F.2d 29 (2d Cir. 1989).

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Between 1985 and 1988, movie companies spent more than onebillion dollars in the purchasing of independent movie theaters." 2

The exhibition industry had not seen such a rush to purchase theaterssince a similar craze in the 1930s."8 3 Spurred by hopes of bolsteringthe economy and convinced that large scale vertical mergers weremore helpful than harmful, the Reagan Administration's new policiessucceeded in returning the structure of the entire motion picture in-dustry back to the state that it had been in before circuit divorcementand theater divestiture in the 1930s. As the motion picture industrywas still a concentrated club that was once again becoming verticallyintegrated, the natural question to arise was whether the evils thatwere stamped out by the original decrees would now return in theirabsence.

III. THE CURRENT STATE OF THE INDUSTRY

It was not long before the victims of the motion pictureindustry's monopolistic practices, whose protection the original de-crees were supposed to ensure, found themselves struggling to sur-vive. As was the case fifty years earlier, while theater acquisitions bythe studios grew, so did market domination by the circuits."' Thepower that these circuits obtained placed a tight squeeze on indepen-dent theater owners,"' causing the number of non-affiliated" cir-cuits and theaters to decline dramatically. According to the lateststatistics, of the more than 24,000 movie screens nationally, affiliatedexhibitors control about eleven percent of the screens.18 7 Of the topten theater circuits in the nation, five, including the two largest, are

182. See Michael Stremfel, Movie Studios Direct More than $1 Billion into TheaterChains, L.A. Bus. L, -Sep. 19, 1988, at 1. During this period, four of the major studiosMatsushita (parent company of Universal), Paramount, Sony, and Warner Brothers madesignificant entries into the exhibition business; see also STANDARD & POOR'S, IndustrySurveys-Leisure Time Basic Analysis 24 (Mar. 12, 1992).

183. See Tagiabue, supra note 158, at 342-43.184. Id. at 343; see also DONAHUE, supra note 88, at 107.185. See Daniel M. Kimmel, Al Says Nix to Switch in Flx, BOsTON Bus. I., Feb. 1,

1988, at 1..186. "An affiliated exhibitor is a firm or corporation engaged in the exhibition of motion

pictures which is owned, operated or controlled, directly or indirectly, by a producer ordistributor of motion picture films." United States v. Balaban, 26 F. Supp. 491, 495 (N.D. Ill.1939).

187. See STANDARD & POOR's, supra note 182, at 24. At the time the Paramount casewas brought, the major defendants controlled 17.3% of the nation's most lucrative theaters.See supra note 58 and accompanying text.

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affiliated with one of the major distributors.' On Long Island, forexample, since Ronald Reagan took over the Presidency in 1980, thenumber of independently owned and operated theaters has droppedfrom 114 to only 20 today.8 9

For the independent exhibitors and producers, one of the mostterrifying aspects of this resurgence was the reasoning that the majorstudios extolled for wanting to reenter the exhibition business. Com-ments by analysts and the studios alike seemed to reflect a desire tobring about similar controls as had existed in the industry in the1930s. For example, Christopher Pearce, the chief operating officer ofCannon Pictures, was quoted as saying, "If you make films, it israther smart to have a place to show them.""9 This statement is inclear opposition to the clauses in the consent decrees that mandatedthat motion pictures be distributed theater by theater and withoutdiscrimination."9' Furthermore, by owning screens, the studios coulddelay video releases until they drained all possible exhibition prof-its, 192 and theater ownership would guarantee that a below-averagefilm would get a "decent screen even when the box office [was] mar-ginal."1" Although these philosophies raise issues and questions thatare similar to those that eventually brought about the original decrees,the Justice Department did not react."9 Even when Warner Brothersextolled what could be considered blatant anti-competitive attitudeswhile seeking to have their original decree terminated,'95 and in the

188. As of March of 1992, the largest circuit was United Artists and the second largestwas Cineplex Odeon, owned by Matsushita, the parent company of distributor Universal. Atthat time, the sixth largest circuit, Cinamerica, was owned by Paramount and Warner Broth-ers. Seventh on the list was Loew's, owned by Columbia's parent, Sony, and tenth wasFamous Players, owned by Paramount. See STANDARD & POOR'S, supra note 182, at 24.

189. Vivian Kellerman, Fade Out: Independent Cinemas Declining, N.Y. TIME, Dec. 29,1991, at 1, § 12.

190. Geraldine Fabrikant, Cannon to Buy Chain of Theaters, N.Y. TIMES, May 8, 1986,at D4, col. 6. It should be noted that the desire to have guaranteed access to screens toexhibit their films was a predominant reason that the studios began their theater purchasingcampaign earlier in the century. See supra section L

191. See supra note 79 and accompanying text.192. Kathryn Harris, Box-Office Potential Entices Large Chains, Movie Makers, L.A.

TIMEs, July 27, 1986, at IV1, IVS.193. See Gilbert, supra note 177. This practice is reminiscent of the banned practice of

block booking which had provided access to screens for undesirable films.194. See Kimmel, supra note 185.195. See supra note 78 and accompanying text. Warner argued that they needed to be

able to own theaters to effectively compete with the other distributors who were not boundby decrees and who were reentering the exhibition business. United States v. Loew's Inc. 705F. Supp. 878, 884-85 (S.D.N.Y. 1988).

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face of opposition by the National Association of Theater Own-ers," s the Justice Department continued to support their petition toreenter the exhibition business."

With the studios firmly entrenching themselves in the motionpicture exhibition business, they were quickly able to effectuate aremarkable decline in independent theater ownership by reusing, indifferent forms, many of the trade practices that had been declaredillegal in the 1930s. For example, although divestiture, and the man-date that motion pictures be distributed theater-by-theater solely onthe merits and without discrimination,198 had been enacted to helpensure that independent exhibitors would regain some bargaining pow-er against the circuits;1 the reintegration, as supported by the Rea-gan Administration, virtually removed these safeguards altogether. Asaffiliated and nonaffiliated circuits continued to grow in size and withthe deep pockets of these large circuits against them, independenttheaters were eliminated from the competition to obtain first run mo-tion pictures.2"° While there is no evidence of the use of collusiveor discriminatory behavior by distributors or affiliated circuits, themarket power of the large affiliates2 ' that had worried the Para-mount court?' has been allowed to resurface.

Although the court found that Warner had legitimate concerns and business reasons forwanting to reenter the exhibition business, this is a less than compelling argument. What ispuzzling about this argument is that the distributors were not supposed to be able to gain acompetitive advantage through theater ownership. Without such advantage, how could WarnerBrothers be disadvantaged?

196. United States v. Loew's Inc., 882 F.2d 29, 32 n.3 (2d Cir. 1989).197. See id. at 30.198. See, e.g., United States v. Loew's Inc., 1950-1951 Trade Cas. (CCH) 62,765 at

64,266 (S.D.N.Y. 1950) (Warner Consent Judgment § n1(8)).199. See CONANT, supra note 7, at 74.200. See DONAHU, supra note 88, at 108; Harris, supra note 192.201. In the past, circuits used their bargaining power to destroy their competition by

obtaining exclusive privileges from distributors which left non-circuit theaters without enoughproduct to fill their screens. These practices were employed in markets in which circuitsowned theaters and even in those in which they did not. See United States v. Griffith, 334U.S. 100 (1948).

202. In determining that a system of competitive bidding involves the judiciary toodeeply in the day to day operations of the industry, the court recognized that:

The trade victims of this conspiracy have in large measure been the smallindependent operators. They are the ones that have felt most keenly the discrimina-tory practices and predatory activities in which defendants have frequently indulged.They have been the victims of the massed purchasing power of the units in theindustry. It is largely outof the ruins of small operators that the large empires ofexhibitors have been built.

United States v. Paramount Pictures, 334 U.S. 131, 162 (1948).

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Independent exhibitors have also been injured by the practice ofauthorizing subsequent repeat runs of a picture in the same theaterthat had the first run. This practice enabled a circuit theater to obtainfor itself all of the exhibition value of a movie.2°" With the circuitsbuilding many new multi-screen theaters, and revamping many oldsingle screen theaters into such giants, they were permitted to show amotion picture in subsequent runs on smaller screens in the sametheater.' 4 Once again, the market power of the circuits left indepen-dent exhibitors without any quality films to show on theirscreens.

205

n an attempt at rectifying the imbalance of bargaining powerthat distributors have maintained over exhibitors in the licensing ofmotion pictures,2°6 twenty-four states have at some time passed mo-tion picture licensing laws.2"r These statutes are predominantly con-cerned with the practice of blind bidding, and uniformly regulate orban the practice. Most of the statutes also regulate the bidding proce-

203. See CONANT, supra note 7, at 83-88; DONAHUE supra note 88, at 107.204. See Harris, supra note 192.205. See Werner, supra note 161.206. Motion picture licensing usually occurs under a competitive bidding, competitive or

noncompetitive negotiation, or track system. With competitive bidding, distributors sendexhibitors solicitation letters informing the exhibitors of the release of new films. Theseletters contain a minimum amount of information about the film, possibly the stars and abrief plot synopsis, and suggested terms for the licensing of the film. If the distributor isunhappy with the bids that they receive, they will either solicit new bids or negotiate directlywith the exhibitors. Lastly, the track system is sometimes used when there is an establishedrelationship between an exhibitor and a distributor. See United States v. Capitol Serv., Inc.,756 F. Supp. 502, 503-04 (7th Cir. 1985).

207. These states are: Alabama (ALA. CODE §§ 8-18-1 to 8-18-4 (1984)); Arkansas (ARK.CODE ANN. §§ 4-75-901 to 4-75-906 (Michie 1991)); Georgia (GA. CODE ANN. §§ 10-1-292to 10-1-294 (1989)); Idaho (IDAHO CODE §§ 18-7701 to 18-7708 (1987)); Indiana (IND. CODEANN. §§ 24-1-5-1 to 24-1-5-7 (West 1980)); Kansas (KAN. STAT. ANN. §§ 51-101 to 51-203(1983)); Kentucky (KY. REV. STAT. ANN. §§ 365.750 to 365-760 (Michie/Bobbs-Merrill1987)); Louisiana (LA. REV. STAT. ANN. §§ 37.2901 to 37.2905 (West 1988)); Maine (ME.REV. STAT. ANN. tit. 10 §§ 1901 to 1905 (Repealed 1983)); Massachusetts (MASS. GEN.LAWS ANN. ch. 93F, §§ I to 4 (Law. Co-op. 1984)); Missouri (Mo. ANN. STAT. §§ 407.350to 407.357 (Vernon 1988)); Montana (MONT. CODE ANN. §§ 30-14-301 to 30-14-308 (1991));New Mexico (N.M. STAT. ANN. §§ 57-SA-1 to 57-5A-5 (Michie 1978)); North Carolina (N.C.GEN. STAT. §§ 75C-1 to 75C-5 (1992)); Ohio (OHIO REV. CODE. ANN. §§ 133.05 to 133.07(Anderson 1979)); Oregon (OR. REV. STAT. § 646.890 (1990)); Pennsylvania (PA. STAT. ANN.tit. 73, §§ 203-01 to 203-11 (1971 & Supp. 1992)); South Carolina (S.C. CODE ANN. §§ 39-5-510 to 39-5-560 (Law Co-op. 1976)); Tennessee (I'ENN. CODE ANN. §§ 47-25-701 to 47-25-704 (1988)); Utah (UTAH CODE ANN. §§ 13-13-1 to 13-13-7 (1986 & Supp. 1992));Virginia (VA. CODE ANN. §§ 59.1-255 to 59.1-261 (Michie 1992)); Washington (WASH. REV.CODE. ANN. §§ 19.58.010 to 19.58.905 (West 1989)); West Virginia (W. VA. CODE §§ 47-llD-1 to 47-11D-4 (1992)); and Wisconsin (WIs. STAT. ANN. § 134.23 (West 1989)).

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dure for licensing motion pictures, and prohibit the use of advanc-es2°2 and guarantees. 2°9 Quite obviously, motion picture distribu-tors have not been happy with these statutes and have brought manycourt cases21° challenging their constitutionality under the CommerceClause, Supremacy Clause, and the First Amendment. 2

' Despitethese challenges, courts have upheld the validity of these laws.212

Unfortunately, these laws do nothing to protect the independent andnon-circuit theater owner from the bargaining power of the affiliatedand circuit exhibitors.

Exhibitors themselves have also attempted to obtain some bar-gaining strength against the distributors with the use of "split agree-ments." Split agreements are the practice whereby exhibitors in a giv-en market split the rights to negotiate for the rental of upcomingfilms.

Split agreements ensure that each split member has an initial rightto bid or opportunity to negotiate for certain films without competi-tion from other split members. Because other split members agreenot to submit bids for films that have not been designated to them,initially the split designee faces competition only from exhibitorswho are not members of the split.213

As with state film licensing laws, distributors desiring to main-tain their bargaining strength have challenged the legality of suchagreements under the Sherman Act.214 Although in many casescourts had been unwilling to impede their use,2 15 in most cases,

208. Advances are funds paid prior to the exhibition of a picture as security for theperformance of the license agreement or to be applied to payments under such an agreement.See Grant, supra note 21, at 368.

209. A guarantee is a minimum dollar amount which the exhibitor guarantees a distribu-tor will receive for granting the license to exhibit a particular film. See Grant, supra note 21,at 368.

210. See, e.g., Warner Bros., Inc. v. Wilkinson, 533 F. Supp. 105 (D. Utah 1981);Associated Film Dist. Corp. v. Thomburgh, 520 F. Supp. 971 (E.D. Pa. 1981), rev'd 683 F.2d 808 (3d Cir. 1982), on remand, 614 F. Supp. 1100 (E.D. Pa.), aftd, 800 F.2d 369 (3dCir. 1985), cert. denied sub nom., Associated Film Distrib. Corp. v. Casey, 480 U.S. 933(1987); Allied Artists Picture Corp. v. Rhodes, 496 F. Supp. 408 (S.D. Ohio 1980), aff'd inpart, 679 F.2d 656 (6th Cir. 1982); Paramount Pictures Corp. v. Busbee, 297 S.E.2d 250(Ga. 1982).

211. For a detailed analysis of the constitutional arguments for and against these statutes,see Mary Elizabeth Kilgannon, Note, Motion Picture Licensing Acts: An Analysis of theConstitutionality of their Provisions, 51 FORDHAM L. REv. 293 (1982).

212. See supra note 210.213. Borner, supra note 87, at 165-66.214. See id. at 160-61, 166-67.215. See, e.g., United States v. Kerasotes Ill. Theaters, Inc., 650 F. Supp. 963 (C.D. Ill.

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courts found them to be illegal restraints of trade. 16 Either way,split agreements do nothing to balance bargaining power in favor ofsmall independent theaters because these exhibitors are excluded fromthe agreements21 and are left in direct competition with the largercircuits.

211

The Reagan Administration's new outlook on antitrust law hasalso affected independent producers. The illegal practices of the Para-mount defendants were, in part, designed to keep independent produc-ers from having access to screens upon which to exhibit theirfilms. 2 9 They were able accomplish this by controlling the distribu-tion arm of the industry and engaging in practices such as blockbooking. So even if producers could get the financing to make amotion picture, they could not get the picture shown in theaters with-out the aid of the studios. As predicted,220 this situation has resur-faced today. The "[d]istribution arm of the motion picture industryhas become increasingly concentrated in several major compa-nies.,221

By the end of the 1980s, the major studios took in "more then90 cents of every dollar earned from the distribution of movies."2 2

This figure has risen since then. In 1991, independents producedroughly 275 movies and distributed 286 movies, with the major stu-dios producing 133 movies and distributing 147 movies.' While

1982); Greenbrier Cinemas, Inc., v. Attorney General, 511 F. Supp. 1046 (W.D. Va. 1981).

216. See United States v. Capital Ser., Inc., 568 F. Supp. 134 (E.D. Wis. 1983) (criti-cizing the Greenbrier decision and holding that these agreements are a per so violation ofantitrust law); see also DONAHUE, supra note 88, at 126.

217. The court in Capitol Ser,., 568 F. Supp. at 142, found that the defendants hadformed the split agreements "for the purpose of eliminating competition among themselves."

218. Independent exhibitor dissatisfaction with split agreements can be seen from the

numerous law suits that have been brought challenging their legality. See, 4.g., SouthwayTheaters, Inc. v. Georgia Theater Co., 672 F.2d 485 (5th Cir. 1982); Wilder Enter. v. Allied

Artists Picture Corp., 632 F.2d 1135 (4th Cir. 1980); Admiral Theater Corp. v. DouglasTheater Co., 585 F. 2d 877 (8th Cir. 1978); Syufy Enterprises v. Nat'l Gen. Theaters, Inc.,575 F.2d 233 (9th Cir. 1978), cert. denied, 439 U.S. 954 (1978); Cinema-Tex Enter. v.Santikos Theaters, Inc., 535 F.2d 932 (5th Cir. 1976); The Movie 1&2 v. United ArtistsCommunications, Inc., 681 F. Supp. 654 (N.D. Cal. 1987), rev'd, 909 F.2d 1245 (9th Cir.1990); General Cinema Corp. v. Buena Vista Distrib. Co., 532 F. Supp. 1244 (C.D. Cal.1982).

219. See supra section I.220. See Arnold, supra note 147.221. Kilgannon, supra note 211, at 293 (emphasis added).222. Elaine Dutka, A Decade Driven by Dollars, not Dreams, L.A. TIES, Dec. 29,

1989, at F6, F8.223. These statistics were computed from charts printed in VARIETY, Dec. 23, 1991 at

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these figures seem to indicate that the independent producers havebeen able to grab a large share of the market, in reality, the moviesproduced by the seven major studios took in 91% of the total domes-tic box office receipts.24 So, while independent producers have notbeen prevented from making films, the control over distribution2

has given the major studios control over almost all of the revenuesthat American films generate at the box office.

CONCLUSION

It took only two terms in the White House for President Reaganto bring about the return of the anti-competitive aura of the 1930s tothe motion picture industry. Eliminated are the safeguards that wereonce designed to open up a closed industry and protect its smallindependent players. The effect that these reforms are having onconsumers and the industry can already be seen and experienced. Forexample, even though exhibition profits are continually rising, this issolely attributable to increased ticket prices, not increased audiences.From 1975 to 1991, admissions decreased an average of 0.3% peryear wliile box office receipts increased an average of 5.3% peryear. 6 At a time when distributors and exhibitors are continuallylosing audiences to pay cable and home video, 7 it would seemprudent to ensure the production of higher quality films and provideincentives to audiences with lower priced admissions. Unfortunately,as prices have been going up, and box office receipts are accountingfor less and less of the studio revenue,2 8 product has been declin-ing in quality.229

13-14.224. See STANDARD & POOR'S supra note 181, at 21.225. The distribution industry remained concentrated after the Paramount case but the

move back into exhibition once again helped those in control secure their power. See gener-ally Whitney, supra note 22, at 190-91 (explaining how the majors didn't lose significantpower after the Paramount case).

226. GOLDMAN SACHS & CO., INvESTMENT RESEARH-MOviE INDUSTRY UPDATE-1992,9 (Mar. 2, 1992) [hereinafter GOLDMAN SACHS].

227. See DONAHUE, supra note 88, at 158-69; see also Alex B. Block, GarthDrabinsky's Pleasure Domes, FORBES, June 2, 1986, at 90, 92; supra note 2.

228. See GOLDMAN SACHS, supra note 226, at 7. One reason for this decline is the in-creased competition for consumer entertainment dollars that has resulted from "an unprece-dented rise in the number of outlets for public entertainment." Boadwin, supra note 2, at1211.

229. See GOLDMAN SACHS, supra note 226, at 9; see also United States v. Loew's Inc.,1980-1981 Trade Cas. (CCH) $ 63,662 (1980) (granting LTI's petition to reenter the produc-tion and distribution business in the hopes of increasing the amount of quality fust run

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As studios use their vast revenues to reenter the exhibition busi-ness, consumers should be getting newer and better theaters designedto enhance their viewing experience and drive them to the movies.Instead what we have are more profitable theaters. Any theater goercan readily attest to the smaller screens and larger prices that havecome with the large multiplex cinemas that have replaced the "Momand Pop" independent theaters. Also, with the major studios in com-plete control of what we see, we can anticipate more sequels ofmoderately entertaining motion pictures that usually steal audiencedollars and provide little of the entertainment of the original film. Ifthe studios wish to recapture lost revenue, there should be more em-phasis placed on producing higher quality films that would enticeaudiences to come to theaters and would eliminate the need for con-stantly increasing admission prices and large multi-screen theaters toenhance profits.

The fate of independent production, distribution, and exhibitionappears to be sealed by the devouring of ninety percent of the totalbox office income by the major studios. As for the future, the out-look can be summed up by the words of Frank Mancuso, then Chair-man of Paramount Pictures: "[T]he studios want increased controlover not just theaters but pay TV, home video, and broadcasting aswell."' Hopefully, as control over the entire entertainment mediabecomes more concentrated, attention will once again be focused onthe consumer, for it is the consumer that must support the industry.

Kraig G. Fox

pictures available for exhibition); United States v. Loew's Inc, 1969 Trade Cas. (CCH)72,767 (S.D.N.Y. 1969) (granting Stanley Warner Pictures permission to enter the produc-

tion and exhibition business in the hopes of increasing the amount of quality first runpictures available for exhibition). But see Whitney, supra note 22, at 193-94 (stating that oneresult of Paramount was the increase in the in the quality of motion pictures).

230. Block, supra note 227, at 94.

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